School Building Contracts Probed

A government contracting program designed to help fledgling construction businesses has resulted in shoddy construction work and a police investigation is underway.

Some construction companies are suspected of receiving work, subcontracting unlicensed or unqualified contractors at a low price, and then using a duplicate contract to reap the difference in money in a slush fund.

When the Board of Education, which orders construction of new school buildings, examines construction companies, it gives additional points to contractors that spend at least 87 percent of their construction fees on subcontracting work to specialty construction companies in order to give regional construction companies a boost.

This system was introduced by the Ministry of Construction and Transportation in 1989. The ruling party was set to get rid of this system starting in 2007, but because of requests from the construction industry, it decided to wait until 2008.

But since then, companies that receive construction work contracts in this period have given unlicensed contractors illegal subcontracts and pocketed the difference. Some of the resulting money is then sometimes transferred to the Board of Education executives that gave out the work.

The Incheon Metropolitan National Police Agency has been investigating 17 school building construction work projects ordered by the Board of Education since 1998 and has detained city board of education executive Mr. Kim (45, 5th level) and two other people on February 27 on charges of bribery and permitting illegal subcontracting, and on charges of receiving 130 million won from seven construction companies.

According to police, the companies that received the construction subcontracted unlicensed contractors for six projects.

During this time, the police have been expanding their investigation according to intelligence they received indicating that a significant number of businesses have regularly bribed high-ranking government officials.

Additionally, on February 23, the Jeonbuk Provincial Police Agency indicted a Jeonju National University of Education facilities officer on suspicion of having received over seven million won from a business for the construction of a new elementary school annex to the university.

One Incheon construction representative received 5.9 billion won for a high school construction project from the Incheon City Board of Education. He gave 300 million won to construction companies in South Gyeongsang Province, which organized a consortium of subcontractors. Afterwards, he entered a collective subcontracting contract with a city Board of Education executive, Kim. The unlicensed construction contractor then distributed 4.4 billion won to 17 different specialty construction businesses.

In return, the construction company made duplicate contracts for the subcontracting work constituting 88 percent of the construction contract and handed the difference over. About 1.5 billion won, almost one third of the contract price, disappeared for reasons unrelated to the actual construction.

A specialty construction business representative said, “After receiving unreasonably low- priced subcontracting work, we had no choice but to engage in fraudulent work,” adding, “It’s amazing that the school buildings have not collapsed.”

Last year, 42.8 percent of respondents to a survey of 164 targeted locations among Incheon members of the Korean Specialty Construction Association (KSCA) said, “The original contractors demanded duplicate contracts.”

The response, “Concealing low price subcontracting” was cited by 63.1 percent of those surveyed as the reason for the duplicate contract being the highest, following contractor slush fund development (20 percent), and contractor extortion (16.9 percent).

Kum-Chun Hwang kchwang@donga.com